Written Commentary
PRECIOUS METALS
Gold: June COMEX contracts are up 1% to $4,767, as they joined a small relief rally with the equities following yesterday’s ceasefire extension. However, broader uncertainty persists around formal negotiations between the US and Iran, likely to keep safe-haven flows supportive of the dollar. The UKMTO reported that an IRGC guard vessel opened fire on a container ship without warning overnight, underscoring the uncertainty over negotiations and cementing the fact that the Strait remains closed.
As long as the Strait remains closed, inflation fears and safe-haven demand for dollar liquidity are likely to offer near-term headwinds for gains in gold. Markets remain hesitant over formal negotiations between the US and Iran given the recent developments and rhetoric, likely keeping traders in check and refining gold to a tighter range until there is further clarity on the geopolitical front. Gold is likely to trade between $4,750 and $4,850, with any move above or below dependent on developments out of the Middle East. Gold has rallied on improved risk appetite, and has sold off on periods of risk-aversion, counter to traditional dynamics, suggesting that traders are more focused on Fed implications and inflationary pressures. De-escalation is likely to prove supportive for precious metals, particularly if it weighs on the dollar.
Fed easing expectations continue to remain favorable to gold prices over the longer-term, given weakness in the labor market. Longer-run inflation expectations at the time-being are also offering resistance to higher yields as the Fed should remain biased towards policy-easing given the weakness in the labor market.
Silver: Silver futures are up 1.7% to $77.80.
BASE METALS
Copper: Copper prices edged higher, though still lacked broader direct ion following the ceasefire extension. Benchmark three-month copper on the LME was up 0.6% at $13,318 earlier in the morning. Meanwhile, the most-active copper contract on the SHFE closed daytime trading up 0.29% at $15,049. Broader and more sustained moved in the metals market are dependent upon clear signals from macro and geopolitical developments.
Goldman Sachs on Tuesday maintained its forecast for the copper price to average $12,650 per metric ton this year and its estimate of a 490,000-ton 2026 surplus for the metal. Risks to copper supply from potential sulphuric acid shortages should disruption to shipping through the Strait of Hormuz continue could offer support to prices. Sulphur and sulphuric acid are key inputs for solvent extraction and electrowinning, a process that accounts for 17% of global copper supply. The Democratic Republic of the Congo and Chile are the most exposed to disruptions in sulphur flows. Companies in the DRC still hold two to three months of inventory, but if supply-chain delays extend beyond late May through June, the country could curtail about 125,000 tons of production in 2026.
Meanwhile, LME copper stocks remain near a 12-year high at almost 400,000 tonnes, offering headwinds to further price gains given the ample supply. On the other hand, strong demand in China has helped limit the downside. Copper stocks in SHFE warehouses fell nearly 10% last week to 240,456 tonnes on Friday and are down almost 45% since March 13.
Zinc: Zinc dropped 0.32%.
Aluminum: Aluminum gained 0.46%. Concerns over Gulf supplies persist; primary aluminum production in the Gulf last month fell by 6% from February, preliminary data from the International Aluminum Institute showed on Monday, with a warning that the fall could be even steeper when final numbers are in.
Tin: Tin gained 1.16%.
Lead: Lead shed 0.20%.
Nickel: Nickel gained 0.80% to $18,370. Fears over sulphuric acid shortages have hit local producers, who have warned that a new ore pricing formula will increase production costs significantly.
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